IMF points to issues with insurance advisers

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Insurance advisers came to the attention of the International Monetary Fund in its Financial Sector Stability Assessment for New Zealand.

Wednesday, May 10th 2017, 6:00AM 1 Comment

by Susan Edmunds

The report was published yesterday, in which the IMF said there was a need to enhance conduct regulation in the insurance sector.

It noted that new insurance sales in this country are for protection only, without any savings element.

"Most life insurers have established fund management subsidiaries and now provide insurance and fund management out of separate entities. New life business is mostly confined to pure protection. KiwiSaver, a tax efficient work-based retirement savings product with some early withdrawal flexibility, has attracted savings that might have otherwise gone into insurance."

It noted that there was no insurance policyholder protection scheme that would protect clients if an insurer failed.

“The policy framework emphasises the need for consumers to make informed decisions, the avoidance of moral hazard, and reducing public perception of any implicit government guarantee. Regulation places particular emphasis on the importance of appropriate disclosure.”

The framework applying to advisers selling more complex products and qualifying financial entities was well-developed, the IMF said.

“The FMA carries out licensing assessments and supervision of these intermediaries, and publishes extensive guidance. There is an effective enforcement process and strong protection is applied to client money due to insurance policyholders.”

But it said there were problems when it came to others offering advice on simpler products.

“The regime applying to those who choose only to sell simpler products, even to retail customers, is limited. Simpler products as defined cover all types of insurance except investment-linked policies. The FMA and government are already addressing these issues in a government-led review of the legislation on financial advice.”

It said conduct regulation was focused on financial advice and other aspects of insurance conduct were less well covered - sometimes just left to the FMA's guidance.

“A developing framework of self-regulation in general insurance and established dispute resolution services help reduce risks to customers, but do not substitute for regulatory requirements and effective oversight.

"The FMA is increasing its overall resources, publishing extensive information on its expectations and undertaking thematic work. The conduct risks in insurance may be lower than in many other developed markets owing to the product range.

"Nonetheless, aspects of the insurer’s relationship with customers where there may be misconduct, including the handling of claims and complaints, and advice on (nominally) simpler products provided by registered financial advisers, are effectively unregulated. Risk-based supervisory oversight, including proactive identification and management of risks, is largely limited to financial advice.”

The report was positive about New Zealand’s economy but suggested higher capital requirements for banks, reconsidering deposit insurance and debt-to-income ratios to draw on if house prices started to rise significantly again.

The FMA said it was considering the proposals.

Tags: Life insurance

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